The role of financial instruments in integrated catastrophic flood management

Ermolieva T, Ermoliev Y, Fischer G, & Galambos I (2003). The role of financial instruments in integrated catastrophic flood management. Multinational Finance Journal 7 (3 & 4): 207-230.

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Abstract

The main goal of this paper is to develop a flood management model that takes into account the specifics of catastrophic risk management: highly mutually dependent losses, the lack of information, the need for long-term perspectives and explicit analyses of spatial and temporal heterogeneities of various agents such as individuals, governments, and insurers. We use modified data from a pilot region of the Upper Tisza river, Hungary, to illustrate the evaluation of a public multipillar flood loss-spreading program involving partial compensation to flood victims by the central government, the pooling of risks through a mandatory public catastrophe insurance on the basis of location-specific exposures, and the demand for a contingent ex-ante credit to reinsure the insurances liabilities. GIS-based catastrophe models and stochastic optimization methods are used to guide policy analysis with respect to location-specific risk exposures. We use economically sound risk indicators leading to convex stochastic optimization problems strongly connected with nonconvex insolvency constraint, VaR and CVaR.

Item Type: Article
Uncontrolled Keywords: flood risk, catastrophe modeling, insurance, stochastic optimization, insolvency, contingent credit, CvaR
Research Programs: Risk, Modeling and Society (RMS)
Bibliographic Reference: Multinational Finance Journal; 7(3&4):207-230 [2003]
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 02:15
Last Modified: 30 Aug 2016 14:29
URI: http://pure.iiasa.ac.at/6790

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